This Saturday, the United States marks 250 years since a group of men, educated in the classical tradition and steeped in the works of Cicero, Seneca, Marcus Aurelius, and John Locke, put their names to a document that attempted to translate two millennia of philosophical argument into a functioning republic. Jefferson’s 1771 reading list, compiled five years before he drafted the Declaration, contained no constitutional manuals, no military histories, no economic treatises. It contained philosophy: books about self-governance, civic duty, the character required to sustain liberty, and what free people owe one another. The founders did not believe a republic could be designed into existence by institutions alone. They believed it required a certain kind of person, shaped by a certain kind of education, asking the same enduring questions that had occupied Athens, Rome, and the Enlightenment before them. As the United States enters its 250th year amid wars, financial turbulence, fracturing alliances, and technological disruption that would have astonished even the most prescient of the founders, those questions feel less like historical curiosities and more like urgent practical demands. What makes a good citizen? How should a free people govern themselves? What kind of character allows liberty to endure? This week’s edition of Geopolitics and the Day After explores the forces reshaping the world the republic now inhabits, and the tensions between the inheritance the founders drew on and the institutions struggling to hold under the weight of the present moment.
Geopolitical Concerns
The rise and fall of US hegemony
Martin Wolf, Financial Times
Ray Dalio says the U.S. just had its ‘Suez moment’
Nick Lichtenberg, Fortune
The Middle East’s Great Divergence Is Underway
Rabah Arezki and Tarik M. Yousef, Foreign Policy
As the Tide Turns Against Putin, Beware the Drowning Man
Peter Frankopan, Foreign Policy
The postwar American-led order is fraying at both its political and monetary foundations. Strained rule-of-law norms and alliance credibility are testing the confidence that once underwrote decades of US primacy, a decline unfolding as barely 7 percent of the world’s population now lives in a liberal democracy. That erosion of confidence is not new. All three major credit-rating agencies, S&P in 2011, Fitch in 2023, and Moody’s in 2025, have already downgraded US sovereign debt, a sequence that predates the current strain but compounds it. Internationally, the dollar’s own arc is drawing comparisons to Britain’s 1956 Suez Crisis, when a currency attack forced London to abandon a militarily successful operation in Egypt and triggered three decades of imperial retreat. This year’s Strait of Hormuz standoff is being framed as a similar test, with a national debt above $39 trillion and a dollar share of global reserves down to 56.9 percent from a 2001 peak of 72 percent cited as evidence the pattern could repeat. The comparison has real limits, since sterling’s decline took thirty years and required two world wars and a depression, and the dollar still remains widely described as the cleanest dirty shirt among global currencies.
That fraying is visible in how individual theaters are behaving. Across the Middle East, economic and security dependence now point in opposite directions, with China now the region’s largest trading partner and crude buyer while the United States remains the only power willing to police the Strait of Hormuz and underwrite Gulf defense. States are responding by hedging and increasingly negotiating directly with one another rather than through Washington, a pattern visible in the 2023 Saudi-Iranian rapprochement and Gulf coordination on energy infrastructure that would have been unthinkable a decade ago. Russia is responding to a weaker hand differently. Casualties have likely surpassed a million, fuel rationing now covers more than half the country’s regions, and military spending has swallowed roughly half the state budget, yet Moscow has rejected peace terms more favorable to Russia than to Ukraine. Western officials increasingly describe this as drowning-man behavior, in which a leader with diminishing options pushes adversaries under rather than negotiating from a position of weakness.
Geoeconomics
AI ‘exuberance’ risks ending in lengthy investment bust, BIS warns
Sam Fleming and Ian Smith, Financial Times
If you thought the global financial crisis was bad…
Carson Block, The Economist
Asia’s AI rally winners face a rising leverage problem
Jada Nagumo and Kim Jaewon, Asia Nikkei
The bond market knows something about the $39 trillion national debt that Washington doesn’t
Eva Roytburg, Fortune
‘The risk of a deleveraging event is rising’
Robin Wigglesworth, Financial Times
The AI capital expenditure boom risks ending in a protracted investment bust, with current spending drawing direct comparison to the canal, railway, and dotcom booms that preceded past recessions once actual returns fell short of what investors had priced in. One bearish market thesis extends that warning into equity markets directly, arguing AI could displace 15 percent of knowledge-economy jobs within three or four years and force retirement accounts to shift from net contributors to net sellers of the same passive S&P 500 funds that have powered markets higher. Because AI mega-caps such as Nvidia, Microsoft, and Amazon are also the stocks most dependent on mechanical passive inflows as the marginal buyer, the same companies powering the AI revolution could see the largest price drops precisely when displaced workers begin drawing down savings.
The financing beneath these bets is already showing strain. Costs for leveraged equity positions have hit record highs as demand collides with banks’ finite balance-sheet capacity heading into quarter-end, and there is a growing risk that dealers respond by shifting capacity away from Treasury funding, tightening conditions in a bond market already absorbing a national debt above $39 trillion. That debt is not yet a crisis, since long-term yields have actually drifted lower as oil prices fall and buyers keep showing up at auctions, but there is no fixed threshold at which it becomes unsustainable, only a point at which lenders decide to stop sustaining it. The same leverage dynamic is playing out more visibly in Asia, where margin buying on the Tokyo Stock Exchange has hit its highest level since 1994 and Taiwan’s margin buying has jumped 170 percent year-over-year, concentrated overwhelmingly in a handful of chip names, including Samsung, SK Hynix, and Taiwan Semiconductor, that now make up more than a quarter of the emerging-market index. Regulators in South Korea have already flagged single-stock leveraged ETFs tied to those names as a household-finance risk should sentiment turn.
Global Junctions
Lizzi C. Lee, Project Syndicate
China Has Matched Anthropic in Cybersecurity, Resetting AI Race
Robert McMillan, Raffaele Huang, and Amrith Ramkumar, The Wall Street Journal
America’s data-centre backlash puts the AI boom at risk
The Economist
Ruchir Sharma, Financial Times
Inside the United States, the AI build-out is colliding with the physical and political limits of the electrical grid and local tolerance. Outstanding large-load grid-connection requests, almost all for data centers, now total roughly a terawatt against a national grid that maxes out around 1,250 gigawatts, and at least $85 billion worth of projects have been canceled over the past three years after local opposition over water use, noise, and land values. Where local approval fails, federal land has become the workaround, as when a 10-gigawatt data-center project was sited on federal ground in Piketon, Ohio specifically to bypass permitting fights playing out elsewhere in the state. China has avoided this friction by coordinating infrastructure top-down rather than negotiating it project by project. Beijing anchors foundational research, Hangzhou drives commercialization, and a national computing network redistributes processing to inland regions with cheap coal and renewable power. The result lets the country convert energy directly into a tradable unit of AI output it calls ciyuan.
That same stack determines who captures the economic and security returns of the boom. Stock market performance is now explained almost entirely by where a country sits within that AI supply chain. The United States and China lead on foundational models, Taiwan and South Korea benefit from chip manufacturing, and countries without an AI play, including much of Europe and India, are lagging by record margins. The same logic extends to cybersecurity, where Chinese AI systems have matched top American models in finding software vulnerabilities even as Washington restricts export of its own top systems on security grounds. Washington’s response has included new efforts to preserve a domestic edge, including a Pentagon deal with open-weight developer Reflection AI for use in classified settings. Critics still call banning American AI exports while continuing to sell China the chips it needs a self-defeating strategy, since it hands Beijing ground in the one domain, offensive and defensive cyber capability, that may determine the next layer of leverage over critical infrastructure.
Global Trajectories
The Gulf’s three post-war challenges
The Economist
Is an AI Jobs Apocalypse Coming? Three Economists Square Off
George Anders, The Wall Street Journal
India’s ‘Cockroach Party’ and the Politics of Youth Discontent
Arsalan Bukhari, World Politics Review
The Generational Force Hollowing Out the Economy
Jennifer M. Harris, The New York Times
Two very different shocks, thousands of miles apart, are unsettling assumptions that had gone unquestioned for years. In India, a single insulting remark by a Supreme Court justice about jobless youth ignited the Cockroach Janta Party, a movement that grew into the millions by channeling frustration over exam leaks and grading failures that left students believing years of coaching and competition could be undermined by institutional breakdown rather than personal shortcoming. In the Gulf, a shorter and more sudden shock, the Iran war, is forcing a similar reckoning with an assumption that no longer holds: that any Gulf economy could diversify by replicating Dubai’s tourism-and-finance model. Saudi Arabia has scaled back its futuristic Neom project in favor of a Red Sea logistics hub, and officials increasingly concede that the war has not killed the Dubai model but has killed the idea that everyone in the Gulf can be Dubai.
The economic version of that same generational anxiety centers on artificial intelligence itself. Labor economists disagree sharply about its endpoint. One camp expects AI to reshape work rather than eliminate it, much as computing did without erasing employment. Another expects labor’s share of national income, roughly 60 percent today, to fall well below half within a generation as machines take on both cognitive and physical tasks. Behind that debate sits a more immediate crowding-out effect. AI data centers are already absorbing land, capital, and materials that housing and manufacturing need. One $50 million Virginia parcel zoned for homes sold for $700 million once a data-center developer bought it, and venture funding keeps shifting toward AI firms at the expense of other promising start-ups. Whichever camp proves right about jobs, the reallocation of capital already underway is not waiting for that argument to be settled.
